Brussels, 12/05/2010 (Agence Europe) - On Wednesday 12 May, the European Commission adopted a communication on coordinating the EU's economic governance, the limits of which have been illustrated a little more clearly by the crisis. The text resumes the observation made in a communication presented in 2008 and develops the ideas in this communication with regard to the 10 years of the euro's existence (EUROPE 9656). It proposes the improvement of existing economic policy coordination mechanisms as part of the existing treaty (only a revision or additions to the derived legal rules are envisaged).
The initiative is centred upon three points and a flagship proposal (EUROPE 10118) for a “European semester”, which proposes that national budgets and national reform programmes being prepared be subject to prior examination by European-level peers. The Commission would like rapid progress to be made with these innovations and will prepare proposals to amend Stability and Growth Pact regulation and improve evaluation of micro-economic imbalances in the eurozone. Although implementation of a permanent crisis management mechanism will be for the medium and long term, the first European semester is expected to begin at the beginning of 2011, explains the communication.
Reinforcing the Stability and Growth Pact (SGP). José Manuel Barroso, the president of the European Commission, insisted that “the rules and principles of the Pact are healthy and solid but greater respect for it is required”. The SGP remains the cornerstone of budgetary surveillance but it is necessary to improve the ex-ante dimension of the process and give it some “teeth”. To achieve this, the Commission is proposing implementation of “European semester” (see below) and is planning on the possibility of compelling member states that do not make sufficient progress towards their medium-term objective in periods of surpluses, to put money aside (a deposit with interest).
With regard to the corrective part of the package, the Commission is proposing earlier and more rapid use of the Pact (by speeding up procedures, particularly for recidivist countries). Greater importance is also expected to be given to the debt criterion as part of the excessive deficit procedure. Therefore, member states with debt ratios above 60% of their GDP are expected to be targeted by excessive deficit procedures if the decline in the debt in a given period does not meet the planned level.
In connection with sanctions and incentives, greater attention is expected to be given to the use of the European budget by member states. Currently, the suspension of cohesion funds, which is only possible for countries that benefit from them, is planned at the final stage in the procedure. More broadly, conditions for payments under the EU budget could be increased and the Commission is asking member states affected by excessive deficit procedure to redirect funds towards the improvement of quality public financing. Barroso recognised that “without sanctions we will not be sufficiently credible”. In this connection, he does not exclusively intend to target cohesion countries.
Deepening and enlarging economic surveillance. This particularly involves tackling disparities in competitiveness. For the EU as a whole, micro-economic imbalances will be tackled within the framework of the EU 2020 strategy, whereas for eurozone countries, the Commission intends to enhance peer-review follow- up by setting up a framework for structured surveillance under Article 136 of the Treaty. The Commission is also proposing to provide itself with new indicators in this domain. These indicators on micro-economic imbalances (productivity, labour costs, employment and unemployment rates, current-account surpluses, etc) would help to identify problems before they become too significant. The Council would therefore able to send out a kind of early warning, explained Olli Rehn, “so the country concerned can take measures before the situation gets worse”.
Establishing a permanent crisis resolution mechanism. Although the intergovernmental mechanism of €440 billion approved by the Council to tackle the risk of current destabilisation in the eurozone will be in place for three years, the Commission wants a permanent mechanism for member states in the eurozone (and only for them). A series of clear and credible procedures is necessary to preserve financial stability to the eurozone in the medium and long-term, indicated the communication, which, according to Barroso lays the basis for a concrete proposal in this connection. Such a system, which will only be activated as a last resort, will very closely resemble the temporary mechanism adopted last Sunday. It would therefore include strict conditions (in budgetary matters and structural reforms) and would have sufficiently dissuasive interest rates to encourage countries that benefit from them to return to the markets and prevent it from promoting an over-tolerant policy. The Commission provides assurances that aid would come in the form of loans and is not in contradiction with Article125 of the Treaty, which rules out any “bailout”.
Focussing on early warning. The Commission wants a greater EU dimension in the drawing of eurozone countries' national budgets. Eurozone country governments will be invited to submit their draft budgets to their peers for comment. The issuing of Stability Programmes and Convergence Programmes will be postponed from the end of the year until the beginning of the next year. The introduction of this “European semester” (running from January to June inclusive, explained Commissioner Rehn) has nothing to do with monitoring national budgets. Instead, he said the idea is to detect any inconsistencies or divergences. Several countries have expressed dislike of the idea. Rehn said that what the Commission was interested in were the Broad Economic Policy Guidelines. Barroso said that national parliaments would still make the decisions but it was important that when national parliaments decided on their country's budget they realised that their country's budget was also a European issue. What if member states refuse? If they don't want economic union, then they'd better forget monetary union, retorted Barroso. (A.B./transl.fl)